Credit watcher Fitch Ratings continues to acknowledge the role of the Bangko Sentral ng Pilipinas (BSP) in creating a stable economic environment by maintaining an appropriate monetary policy stance to bring inflation down.

In a credit update released this week, Fitch, which considers the BSP a credible inflation-targeting central bank, said it expects the economy will grow stronger in the coming years with a lower BSP policy rate.

Fitch said growth is slower but “still solid.” It expects gross domestic product (GDP) to grow by 5.7 percent this year and by 5.9 percent in 2025, driven by domestic demand. By 2026, Fitch expects GDP will improve to the six-percent range due in part to a lower interest rate regime.

“Real GDP growth has slowed since the post Covid-19 pandemic rebound in activity (but) we expect growth to pick up to 6.2 percent by 2026 on monetary easing, infrastructure spending and reforms to foster trade and investment,” the credit rating agency said.

In a statement on Wednesday, Dec. 18, the BSP, citing the Fitch report, said the central bank’s progress in controlling inflation has been successful. Inflation has averaged 3.2 percent as of the end of November 2024, down from six percent in 2023.

To bring inflation lower and within the target range of two percent to four percent, the BSP’s policy-making arm, the Monetary Board, raised the key rate by a total of 100 basis points (bps) to 6.5 percent in 2023.

The inflation rate has moderated in recent months, prompting the BSP to cut rates by a cumulative 50 bps in August and October. As of November, inflation has settled at 2.5 percent, while the BSP rate has eased to six percent.

To enhance the transmission of monetary policy, the BSP, in collaboration with the banking industry, recently launched peso interest rate swaps (Peso IRS).

“These and other initiatives of the BSP, the government, and the banking industry aim to boost trading and liquidity of local bonds and other instruments and make them more accessible not just to local but overseas investors as well,” the BSP said on Wednesday.

BSP Governor Eli M. Remolona Jr. has said that the creation of a benchmark yield curve through the Peso IRS and the enhanced repo market will not only deepen the capital market by boosting trading but also provide more liquidity in the local bond or securities market.

Meanwhile, the BSP and other government units are engaged with credit rating agencies and financial market index providers to make local assets more accessible to both foreign and domestic investors.

Currently, Philippine US dollar bonds are rated “BBB+” by S&P Global, and “Baa2” and “BBB” by Moody’s and Fitch, respectively. Japanese R&I also upgraded the country’s rating to “A-” last August.

Fitch’s latest credit update report is a separate report from a rating action.

In June, Fitch affirmed the country’s "BBB" investment-grade credit rating with a "stable" outlook amid the Philippines’ sustainable growth, strong macroeconomic policies, stable debt levels, and the BSP’s steady policy settings.

The Philippines has had a “BBB” credit rating from Fitch since December 2017.